By Kevin Rose, in our one-man New York office
Last week was a cracking one for the International Fund. You might have noticed American Express and Google were up substantially thanks to excellent results announcements. But the biggest gain came from Veripos Inc, a provider of GPS positioning services for the offshore oil and gas industry.
The September Quarterly Report laid out our thesis on the energy sector and detailed a few of the bargains we have found. We opted not to disclose company names to allow flexibility for future purchases, but recent positive events have made that moot for Veripos. We acquired shares in the company back in July after coming to admire its competitive position as one of only three significant players in the world and the critical nature of its service – its systems enable marine vessels to track and position themselves to the most precise degree possible, an essential service in the offshore oil and gas industry.
Veripos was a recent spin-off of a much larger public company, Subsea 7, and its shares had failed to find a natural investor base. Spin-offs are often attractive for this reason – investors in the larger company don’t want to (or can’t) own shares in the smaller business. The smaller company gets spun out, investors receive shares of the new company as a dividend and then dump them. Veripos was highly undervalued for these reasons and we made it one of the Fund’s largest positions.
Last week the company received a takeout bid at 28 NOK, a 53% return from our average purchase price. The potential acquirer, Hexagon AB, operates various service businesses mostly in the onshore oil and gas sector. I’m sure they saw many of the same things we saw: a unique asset with a strong competitive position, exposure to a growing end market and numerous cost efficiencies to be gained under its umbrella. I’ll decline to postulate my opinion on the offer, just in case someone at Hexagon comes across our merry little blog (not out of the question since I’m sure they are investigating as many of Veripos’s shareholders as they can). The deal has a high threshold for shareholder approval, so perhaps Intelligent Investor Funds will have a cameo in how this all gets sorted out.
But while Veripos may be leaving the portfolio, that won’t be the case for our exposure to the energy sector. We are continuing to find potentially attractive assets trading at deep discounts, and if anything, acquisition activity such as this provides further support for our overall energy thesis.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.